Does It Make Sense to Pay an Annual Fee?

This page includes analysis of our favorite cards from disclaimer-statement.info's advertisers and the marketplace. Visit our advertiser disclosure to learn more.

Many rewards credit cards charge annual fees up to $100 or more. Are they worth it? Photo:

Have you ever vowed to sign up for a rewards credit card, but changed your mind after seeing the annual fee? If you have, you’re certainly not alone. Although the top rewards cards offer plenty of value, many people don’t want to pay an annual fee for the privilege of having one.

At the same time, some rewards enthusiasts don’t mind paying an annual fee every now and then. Why? Because, despite the upfront cost, they feel they’re getting more than enough value in return. This post aims to explain why an annual fee makes sense sometimes, and how you can determine when an annual fee is worth it.

What Is an Annual Fee?

Since many rewards cards are fee-free, it’s easy to wonder why others charge a fee to begin with. As a general rule, however, the rewards cards with the biggest perks and signup bonuses are the ones that charge an annual fee. And if you want the most bang for your buck, you’ll be asked to pay for it.

Most annual fees charged by rewards cards are somewhere between $59 and $95. However, certain premium cards charge annual fees as high as $450 or more. Annual fees pay for:

Credit card perks: While all cards offer a different set of benefits, many rewards cards that charge an annual fee come with special perks such as price protection, extended warranties, and free FICO scores.

How to Tell When an Annual Fee Is Worth It

While there are no hard and fast rules that dictate when paying an annual fee is worth it, it’s fairly easy to tell. For the most part, paying a card’s annual fee is worth it if you’re receiving more back than you are paying in.

It’s also worth noting that most of the top rewards credit cards waive the annual fee for the first year, which gives you time to see if the added cost is worth the benefits. Once the annual fee is due, however, these tips can help you decide.

Most of the time, paying an annual fee is worth it when:

You’re earning enough rewards to offset the annual fee. If you’re spending enough on your card each month to rack up plenty of rewards, then paying an annual fee might make sense.

You’re using your card’s “extra benefits” frequently enough.

Your card offers services you needed to pay for anyway. If you need to purchase primary auto rental coverage each time you get a rental car, for example, it might be wise to get a rewards card that offers that coverage as a cardholder perk instead.

A Real-Life Example

To show how and when paying an annual fee might be worth it, let’s imagine you just signed up for the Chase Sapphire Preferred® Card and met the minimum spending requirement. The annual fee is $95, and the sign-up bonus alone is worth $750 in travel when you redeem through Chase Ultimate Rewards®.

But, should you pay the $95 annual fee?

If you spend more $5,000 per year on travel or dining…

Yes. Since you earn two points per dollar spent and you can redeem your points for gift cards or cash back, $5,000 in travel and dining spending will net you $100 in value.

If you spend more than $10,000 per year on regular purchases…

Yes. Since you earn one point per dollar spent on all purchases, annual spending on the card of $10,000 means you’ll score enough points for a $100 gift card or $100 in cash back.

If you rely on your card’s valuable perks…

Yes. Since primary auto rental coverage or even trip cancellation insurance can easily cost a lot more than $100 each time you buy, using this coverage just once a year means the card pays for itself.

With all of that being said, paying an annual fee might not be worth it if you don’t spend much within your card’s valuable bonus categories, which in the case of the Chase Sapphire Preferred® Card, is travel and dining. Meanwhile, if you don’t use your card often, you may find little value in the points you earn anyway.

The Bottom Line

Paying your card’s annual fee is worth it when you’re getting more value out than you’re putting in. It’s as simple as that. And that value can be extracted in more than one way, too.

Whether you’re addicted to the rewards points you earn, used to relying on your card’s valuable insurance coverage, or enjoying the fact that credit cards in general offer superior fraud protection and liability coverage, it’s OK to pay a card’s annual fee if you truly value what you’re getting in return.

And, as always, the choice is yours to make.

Do you ever pay annual fees on credit cards? What perks make an annual fee worth it for you?

Editorial Note: Compensation does not influence our rankings and recommendations. However, we may earn a commission on sales from the companies featured in this post. To view a list of partners, click here. Opinions expressed here are the author's alone, and have not been reviewed, approved or otherwise endorsed by our advertisers. Reasonable efforts are made to present accurate info, however all information is presented without warranty. Consult our advertiser's page for terms & conditions.

The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved, or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.

Categories

Company

Our Brands

Advertising Disclosure: disclaimer-statement.info has an advertising relationship with some of the offers included on this page. However, the rankings and listings of our reviews, tools and all other content are based on objective analysis. disclaimer-statement.info does not include all card/financial services companies or all card/financial services offers available in the marketplace. For more information and a complete list of our advertising partners, please check out our full Advertising Disclosure. disclaimer-statement.info strives to keep its information accurate and up to date. The information in our reviews could be different from what you find when visiting a financial institution, service provider or a specific product's website. All products are presented without warranty.